Published by Economist Intelligence Unit

Event

The president, Nicolás Maduro, is on a tour of OPEC nations, hoping to persuade members to cut production as Venezuela suffers further from low oil prices.

Analysis

Mr Maduro has visited Iran, Saudi Arabia, Qatar and Algeria on this tour, after the former oil minister, Rafael Ramírez, failed to convince oil producers to cut production at an OPEC meeting in Vienna last November. Iran is in a similar position to Venezuela, suffering from low prices, and has said that it would collaborate with Venezuela's attempts to force a price rise. However, the other nations have been more lukewarm, talking with Mr Maduro but not promising action.

The Venezuelan oil barrel, which sells for slightly less than international prices, as it is composed of heavier crude, last week averaged just US$42.44. This is almost US$20 below the amount budgeted by Venezuelan authorities, and perhaps three times less than the country requires to support its bloated spending. Mr Maduro said last year that he could guarantee "food, education and life" to Venezuelans even if the barrel went down to US$40. This is not realistic, particularly as 96% of the country's foreign income comes from oil.

Low oil prices will continue to be a major economic challenge for Venezuela and a major political problem for Mr Maduro. In the final days of 2014 the government confirmed that the country's economy had been in recession for the first three quarters of the year, and annual consumer price inflation in November was at 63.6%, the highest rate in the hemisphere. Mr Maduro vowed that 2015 would be a year of "great economic transformation" and hinted at policy changes, including an overhaul of existing exchange controls. However, there is little likelihood that this will happen, given his lack of political capital. Mr Maduro's approval ratings are in the low twenties and falling.

In Caracas, the capital, supermarket lines and shortages are at their worst in years. Many people, some former government supporters, are losing patience. Queues of thousands of people outside supermarkets have long been a regular occurrence in the interior of the country, especially at its borders with Brazil and Colombia. However, until now, these have been rare in Caracas.

Impact on the forecast

We do not foresee a major change in OPEC policy as a result of Venezuela's lobbying efforts. Therefore, we have made no adjustments to our forecasts at this time.